The national Bank of Ukraine in connection with the trade blockade ORDO and improve the situation on foreign markets has revised macroeconomic indicators for 2017 and 2018, in particular, worsening the forecast of growth of gross domestic product in 2017 from 2.8% to 1.9%.
As stated in the message NBU on Tuesday, citing a decision of the extraordinary meeting of the Committee on the monetary policy from 20 March, the growth of Ukraine’s GDP in 2018, on the contrary, improved from 3% to 3.2%.
At the same time, the national Bank has confirmed the forecast of inflation for the current year at 9.1% and next 6%.
In connection with the blockade of the assessment of the deficit in the current account balance for 2017 has dropped from $3.5 billion to $4.3 billion, and the next – from $3.4 billion to $4.3 billion.
The NBU has also lowered the forecast of the international reserves of Ukraine at the end of this year from $21.3 billion to $20.8 billion, and at the end the following – from $27.1 billion to $25.9 billion.
“The impact of the blockade on the exchange rate of the hryvnia will be limited. The deterioration in the balance of payments in the first place will be displayed on the net purchase of currency in the market to replenish the reserves,” – emphasizes the Bank.
NBU recalls that recently bought the currency on the interbank market in the presence of excess supply to replenish international reserves. “To mitigate the impact of the trade embargo on the foreign exchange market, the national Bank plans to reduce the volume of purchases of foreign currency in the interbank market, leaving more currency in the market and contributing to the narrowing of the fluctuations of the hryvnia,” – said in the message.
The Deputy head of the Central Bank Oleg Chury said to journalists that despite the increase in the expected current account deficit in General, the NBU predicts the reduction of the balance of payments in 2017 with a surplus of $0.6 billion
The national Bank notes that March 20 has provided updated estimates for review to the International monetary Fund in the revision of the macroeconomic projections of the programme of cooperation of IMF with Ukraine.
“The national Bank expects that the largest effect of the trade embargo, the Ukrainian economy will feel this year. Because of the seizure by terrorists of existing enterprises in the Ukrainian legal framework, the gap of the chains of production and delivery of finished products reduced the volume of production of metallurgical and mining industry, coke, electricity”, – stated in the release of the NBU.
The Central Bank clarifies that the effect of the blockade will slow down GDP growth by 1.3 percentage points (PP), however, this negative factor will be partially offset by an increase of 0.4 percentage points due to more favorable conditions for Ukrainian exports (metals, iron ore, grains) in foreign markets than previously expected.
The same partial compensation will occur, according to the national Bank, and the balance of payments, where the effect of the blockade of $1.8 billion will be commuted from a positive improvement in the external market at $1 billion.
This negative effect from the blockade will be mostly offset by other factors, primarily the more favourable price situation in external markets for Ukrainian exports than previously predicted. Net positive effect on economic growth from the favorable situation on foreign markets will be about 0.4 PPT
“The NBU expects that by the end of 2017 enterprise on the territory controlled by Ukraine will be able to shift to alternative sources of raw materials and energy and in the next year will be able to reach maximum capacity utilization. This, as well as the base effect will lead to the fact that in 2018 the economy will grow faster than projected in the January forecast,” says the Central Bank improved the forecast of GDP growth to 3.2% in 2018.
As for inflation, according to the regulator, the effects of rising food prices on the world commodity markets will be offset by slower growth in administratively regulated tariffs and declining pressure on prices from aggregate demand, according to the NBU.
The controller recalled that the monetary policy Committee is a consultative body established to exchange information and views concerning the formulation and implementation of monetary policy to ensure price stability.
Final approval of the updated macroeconomic forecasts and decision-making on monetary policy based on them will be held during the next meeting of the Board of the NBU’s monetary policy April 13, 2017 in accordance with the approved schedule, the report said.